LDS Freedom Forum

Jason wrote:No offense but (here's where I offend after stating such an ad lib comment) it sounds like mumbo jumbo to me...

It is not based upon data, because there is no valid data for financial and monetary aggregates, and the physical economy cannot be measured in dollars.
Initially, the financial aggregates begin to grow, draining money and credit that should be used for improving the physical economy into speculation. The monetary aggregates rise behind the financial, as necessary to settle all the financial transactions as they come due.

He is correct though in that the physical collapse will be the one that kills us!

FACT IS..it doesn't matter, we are in to deep to "bail out" either way, either or both, we are finished..bring it on, what an Obamanation

Original_Intent wrote:Well, I will not predict hyperinflation in the immediate future, but I will be amazed if we don't see 15% or higher interest rates during Barry's first term. There are several things unwinding that are truly once in a lifetime events which will have a huge impact.

We are experiencing the end of the Petro-dollar. Many countries are already dumping dollar reserves in favor of the Euro or hard assets.

Petro-dollars is what has enabled the Fed to increase money supply by over 10% a year and still claiming only a 2-4% inflation rate based on CPI. All the difference was getting sopped up overseas.

We are about to get decades worth of hidden inflation hitting our market very rapidly. It's going to take a miracle to keep high inflation from spiralling into hyper inflation imho.

Time alone will tell.

What enabled the Fed was debt creation. Petro recycling helps but lowering interest rates to 50 year low was the big banana. Inflation was very steep with housing in some areas doubling in just a year or two whereas historically it had taken a decade or more. Auto's inflated as well. As well as education. Between housing, auto, and education you have the three biggest purchases people make in a lifetime. Those stats aren't captured in CPI which is totally ridiculous by the way. We've been through a period of high inflation due to debt growth. Now we are just beginning to experience the deflation side.

My in-laws were told last week by their Realtor that their home has dropped $100k in value over the past year. Reality is it is still another $100k overpriced at $350. 40% of the homes in the Boise area are upside down.

Original_Intent wrote:Well, I will not predict hyperinflation in the immediate future, but I will be amazed if we don't see 15% or higher interest rates during Barry's first term. There are several things unwinding that are truly once in a lifetime events which will have a huge impact.

15% rates will choke off any tiny bit of recovery we see, drown the US economy, crush China, and start some serious trade wars. Besides, Bernanke won't repeat the problems of the GD by raising rates to 15%. Where do you think the new debt bubble will be that enables this super-high inflation rate? The last backstop was Fannie and Freddie, FDA, MBS's, subprimes, and overall housing inflation. I agree hyper-inflation could be the outcome but I cannot find anywhere the new debt will go. We cannot have hyper-inflation without the economy turning around and expanding the debt. What the Fed and Treasury is doing is not enough. Where oh where will all that debt go? Ooh where ooh where can it be?

Original_Intent wrote:We are experiencing the end of the Petro-dollar. Many countries are already dumping dollar reserves in favor of the Euro or hard assets.

Source please. I've seen plenty of talk from Russia and China, but talking and taking action are not the same. Japan and China have both said they'd support the USD. The Fed is the largest holder of treasuries, and obviously they are not dumping. Where's the dumping? Putin is promoting silly little ideas like when he says swaps are what killed the world economy, but he wants to swap debt holdings with China, India, and Brazil. Russia cannot afford to buy their bonds unless they buy Russia's. That's just Putin's nonsense rhetoric.

Original_Intent wrote:Petro-dollars is what has enabled the Fed to increase money supply by over 10% a year and still claiming only a 2-4% inflation rate based on CPI. All the difference was getting sopped up overseas.

Sure, we've exported a lot of inflation and imported deflation. Your claim, however, is a straw man argument. For one thing, the CPI is skewed, and would have shown much higher inflation if housing prices were included, not to mention other things like Jason did. For another, you didn't even refer to productivity gains, which offset money supply growth.

Your sentence should read All the difference was getting sopped up in housing.

Original_Intent wrote:We are about to get decades worth of hidden inflation hitting our market very rapidly. It's going to take a miracle to keep high inflation from spiralling into hyper inflation imho.

Time alone will tell.

OI, I appreciate your input. I'd love to hear your side and will enjoy supporting evidence and complete ideas more than simple opinion.

Will one of you inflationists or stagflationists please tell me where the debt expansion is going to be? And where is the excess demand going to come from? Supply constraints? Where?

Targets for the inflation vampire.......Land - Dead. Housing - Dead. Autos - Dead. Education - Dead. Clothing - Dead. Leaves energy and food? What else do people buy?

I can see a way for inflation to take control - i.e. eat up all the excess capacity floating around....

World Wide War

Increases employment, increases manufacturing demand, increases energy use, etc etc etc

Jason wrote:I can see a way for inflation to take control - i.e. eat up all the excess capacity floating around....

World Wide War

Increases employment, increases manufacturing demand, increases energy use, etc etc etc

Broken Window theory. Not saying it wouldn't do exactly as you say, it's just that it doesn't create wealth it destroys it. It just gets everybody busy.

Or they could have taken the trillion dollar stimulus and the trillion dollar bank bailout and sent every American man woman and child $6,000 bucks. That would have gotten the economy moving.

Oh but THAT would be inflationary? So why would doing that be inflationary but pumping the same amount of money into the economy via stimulus and bailout would not be inflationary? At least giving it to people (while being a mistake) at least would have achieved the objective of getting the economy going again. The bailouts didn;t really accomplish that because the banks are sitting tight on OUR money and not lending. Stimulus most of the money is being saved for 2010 qand 2012 so they have the economic shot in the arm to brag about on the campaign trail.

Original_Intent wrote:Or they could have taken the trillion dollar stimulus and the trillion dollar bank bailout and sent every American man woman and child $6,000 bucks. That would have gotten the economy moving.

Oh but THAT would be inflationary? So why would doing that be inflationary but pumping the same amount of money into the economy via stimulus and bailout would not be inflationary?

Because 1) Most stimulus/printing/guarantees went to banks to shore up their balance sheets (patch holes). Most did not get into the real economy; 2) demand for goods would skyrocket if everyone got a $6k check, factories would start back up, power useage would go back up, natural gas exploration would resume, etc.

Original_Intent wrote:At least giving it to people (while being a mistake) at least would have achieved the objective of getting the economy going again.

Maybe, if id did not cause a dollar panic.

Original_Intent wrote:The bailouts didn;t really accomplish that because the banks are sitting tight on OUR money and not lending. Stimulus most of the money is being saved for 2010 qand 2012 so they have the economic shot in the arm to brag about on the campaign trail.

Glad others realize this was Obama's intent. I get stupid looks every time I say this. Obama can't have his stimulus work too early and ruin campaign bragging rights. Libs have very short memories.

If you have conspiratorial view of the FED (which I do) you can also ask yourself which would benefit them better, a massive inflationary cycle or a deflationary cycle. Inflation makes existing debt less expensive, and chases off investors. Depending on how dark you view the FED, if they want us in economic slavery, the would WANT deflation, not inflation. Deflation makes us want more cash, and thereby divesting ourselves from capital and commodities. Who would end up holding the capital and commodities but the FED (who is holding 95% of all housing debt right now.) With inflation the debtor ends up with everything. Because this discussion is as much policy as economics, I have shifted my opinion a bit believing that in the end the FED wants the stuff. Yet they also want a one world currency. How do they go about doing this? They must destroy the dollar without inflating it. Is this possible?

With all the talk about inflation/deflation, what about foreign currency exchange? If we don't make anything, and he have to import it all, interest rates and exchange rates are king. As much as foreign investors need to feel that we're good for their investment in dollars, they must also be confident that the economy will perform to also provide those dollars. Either way, I think we're in for higher interest rates in the future. I see no way around it. A deflationary market could therefore create higher interest rates, chasing prices down even farther on domestic goods such as real estate and higher-end commodities, whether the FED raises rates or the "I" part of the rate goes up naturally. However, wouldn't prices on imported goods shoot through the roof due to exchange rates and the worry about the dollar?

pjbrownie wrote:If you have conspiratorial view of the FED (which I do) you can also ask yourself which would benefit them better, a massive inflationary cycle or a deflationary cycle. Inflation makes existing debt less expensive, and chases off investors. Depending on how dark you view the FED, if they want us in economic slavery, the would WANT deflation, not inflation. Deflation makes us want more cash, and thereby divesting ourselves from capital and commodities. Who would end up holding the capital and commodities but the FED (who is holding 95% of all housing debt right now.) With inflation the debtor ends up with everything. Because this discussion is as much policy as economics, I have shifted my opinion a bit believing that in the end the FED wants the stuff. Yet they also want a one world currency. How do they go about doing this? They must destroy the dollar without inflating it. Is this possible?

With all the talk about inflation/deflation, what about foreign currency exchange? If we don't make anything, and he have to import it all, interest rates and exchange rates are king. As much as foreign investors need to feel that we're good for their investment in dollars, they must also be confident that the economy will perform to also provide those dollars. Either way, I think we're in for higher interest rates in the future. I see no way around it. A deflationary market could therefore create higher interest rates, chasing prices down even farther on domestic goods such as real estate and higher-end commodities, whether the FED raises rates or the "I" part of the rate goes up naturally. However, wouldn't prices on imported goods shoot through the roof due to exchange rates and the worry about the dollar?

Debt is one of the best controls invented. Deflation makes debt unbearable. The tightrope is between default and control. Push it too far and default occurs. Push it too hard and chaos follows.

pjbrownie wrote:If you have conspiratorial view of the FED (which I do) you can also ask yourself which would benefit them better, a massive inflationary cycle or a deflationary cycle. Inflation makes existing debt less expensive, and chases off investors. Depending on how dark you view the FED, if they want us in economic slavery, the would WANT deflation, not inflation. Deflation makes us want more cash, and thereby divesting ourselves from capital and commodities. Who would end up holding the capital and commodities but the FED (who is holding 95% of all housing debt right now.) With inflation the debtor ends up with everything. Because this discussion is as much policy as economics, I have shifted my opinion a bit believing that in the end the FED wants the stuff. Yet they also want a one world currency. How do they go about doing this? They must destroy the dollar without inflating it. Is this possible?

With all the talk about inflation/deflation, what about foreign currency exchange? If we don't make anything, and he have to import it all, interest rates and exchange rates are king. As much as foreign investors need to feel that we're good for their investment in dollars, they must also be confident that the economy will perform to also provide those dollars. Either way, I think we're in for higher interest rates in the future. I see no way around it. A deflationary market could therefore create higher interest rates, chasing prices down even farther on domestic goods such as real estate and higher-end commodities, whether the FED raises rates or the "I" part of the rate goes up naturally. However, wouldn't prices on imported goods shoot through the roof due to exchange rates and the worry about the dollar?

This is what I was talking about earlier in losing our stability premium. Foreigners dump t-bills and rates will jump as the USD falls on the Forex. However, they cannot and likely will not. If China dumps dollars then their currency appreciates. Their currency appreciates and we cannot afford their goods. If we don't buy their goods then their economy starts to collapse. If their economy starts to collapse then the people start to rebel. If the people rebel then the communists risk losing power. The communists like power so they support a strong dollar and devalue their own currency.

The exchange rate issue is the ultimate problem, IMO. China has distorted floating values too much for too long, and now they are paying the price (slave to our debt) as well as us (slave to our debt). The floating exchange was supposed to keep a country from spending too much more than they make. China, however, didn't like that idea so they kept buying t-bills to keep their currency artificially low. If they had not done this then the US couldn't buy all that junk, consumerism would have been limited, and I don't think all the jobs we've lost would have gone as quickly.

I'm not one of those who claims we don't make anything. We do. In addition to feeding a lot of the world and making chemicals, we also export technology, engineering services, and pharma/med, which is great as it is a sign we're still on the leading edge. The problem is not losing the textile jobs to other countries. The problem is we've done it by going into debt. Shut off the line of credit from the People's Republic and we cannot finance a multi-billion dollar trade imbalance.

Deflation (reduction in prices) is a non-issue. This is the normal, gradual result of a free market with sound money, and gradually increases the standard of living of everyone. Would you worry about the "deflation" in the price of computers and cell phones and other electronics that has happened as a result of the costs of their production and materials being reduced, or by the competition in the market causing the prices to be reduced?

It is those who wish to rob us of the value of our savings and life's work through stealing its purchasing power that invent the threat of deflation as an excuse for the inflation they want to create (even if in a very limited, gradual way).

Check out the free audio files here for more on this subject:

http://mises.org/media.aspx?action=search&q=deflation

pjbrownie wrote:If you have conspiratorial view of the FED (which I do) you can also ask yourself which would benefit them better, a massive inflationary cycle or a deflationary cycle. Inflation makes existing debt less expensive, and chases off investors.

Yes but it also discourages long-term savings thus creating an incentive (and consequent demand) for lending and investment. Inflation has been what has been driving the stock market higher in an environment where any other source of increased investment capital is absent. If you look at American industry before the Fed, many corporations were beginning to fund their ventures and expansions through savings and were not turning to banks for loans. They could do this because there was not the currently existing counter-incentive to save that is presented by inflation. The bankers were creating long-term demand for their services by setting up a system with monopoly control of money by which they could (and did) steadily erode the value of the currency. Inflation discourages saving and encourages borrowing.

Inflation slowly (and in some cases quickly) robs anyone who has the fruit of their labor denominated in Federal Reserve notes of the wealth (purchasing power) that they contracted for when they received those notes as compensation. You end up with more "dollars" but you are unable to save your wealth and pass it on to future generations without a currency that maintains its buying power. Thus we have epidemic debt (debt as the very life-blood of the economy and the indicator of 'wealth') and the consequent servitude that it implies and creates.

Swmorgan77 wrote:Deflation (reduction in prices) is a non-issue. This is the normal, gradual result of a free market with sound money, and gradually increases the standard of living of everyone.

I don't think anyone here is saying increasing purchasing power via production improvements is a bad thing. Instead, we're arguing what we consider the likely outcome of the current debacle in the near to medium term.

We may argue that deflation could collapse the economy or cause national insolvency. However, that argument is different than talking about purchasing power.

Swmorgan77 wrote:Would you worry about the "deflation" in the price of computers and cell phones and other electronics that has happened as a result of the costs of their production and materials being reduced, or by the competition in the market causing the prices to be reduced?

What's amusing is this was a major complaint, especially from farmers in debt, prior to 1913. Conspiracy theories were pretty big then regarding the bankers purposefully creating a deflationary environment by choking off lending. It seems to be the exact opposite today. Also, lazy people and those afraid of the future worry about deflation and production innovation because they don't want to continually improve, or are too scared to. Inflation and a lack of innovation saves jobs and reduces the demand for increased efficiency (by raising prices but not debt loads).

Swmorgan77 wrote:It is those who wish to rob us of the value of our savings and life's work through stealing its purchasing power that invent the threat of deflation as an excuse for the inflation they want to create (even if in a very limited, gradual way).

Check out the free audio files here for more on this subject:

http://mises.org/media.aspx?action=search&q=deflation

Thanks for your thoughts. I think the purpose of the Federal Reserve with their constant currency expansion mandate is to enable extreme debt, and to create a system that is "too big to fail", thus introducing socialism through bailouts, government insurance, and subsidies like the Fed "buying" MBS's, FHA and Freddie and Fannie.

JMarsigli wrote:

Swmorgan77 wrote:Deflation (reduction in prices) is a non-issue. This is the normal, gradual result of a free market with sound money, and gradually increases the standard of living of everyone.

I don't think anyone here is saying increasing purchasing power via production improvements is a bad thing. Instead, we're arguing what we consider the likely outcome of the current debacle in the near to medium term.

We may argue that deflation could collapse the economy or cause national insolvency. However, that argument is different than talking about purchasing power.

Swmorgan77 wrote:Would you worry about the "deflation" in the price of computers and cell phones and other electronics that has happened as a result of the costs of their production and materials being reduced, or by the competition in the market causing the prices to be reduced?

What's amusing is this was a major complaint, especially from farmers in debt, prior to 1913. Conspiracy theories were pretty big then regarding the bankers purposefully creating a deflationary environment by choking off lending. It seems to be the exact opposite today. Also, lazy people and those afraid of the future worry about deflation and production innovation because they don't want to continually improve, or are too scared to. Inflation and a lack of innovation saves jobs and reduces the demand for increased efficiency (by raising prices but not debt loads).

Swmorgan77 wrote:It is those who wish to rob us of the value of our savings and life's work through stealing its purchasing power that invent the threat of deflation as an excuse for the inflation they want to create (even if in a very limited, gradual way).

Check out the free audio files here for more on this subject:

http://mises.org/media.aspx?action=search&q=deflation

Thanks for your thoughts. I think the purpose of the Federal Reserve with their constant currency expansion mandate is to enable extreme debt, and to create a system that is "too big to fail", thus introducing socialism through bailouts, government insurance, and subsidies like the Fed "buying" MBS's, FHA and Freddie and Fannie.

to add to that - purpose is to gain complete control of the financial system and thereby the people. Debt is a very effective tool. Have you ever seen someone break down in tears at the checkout register when 5 out 5 plastic cards fail to obtain the purchase?

Control the ability to buy & sell and you control the people.

There has never been a better time to be a consumer. America is on sale.

http://finance.yahoo.com/banking-budget ... is-on-sale

Say hello to my little friend deflation!!!

Last fall's financial meltdown triggered a plunge in stock prices and home values and wiped out 11 percent -- $6.6 trillion -- of household wealth in six months. It also put an end to easy credit, which had fueled the consumption that powered the economy for most of the decade.

Just the beginning!

Hotel rooms cost travelers nearly 20 percent less, on average, than last year, the biggest decline since Smith Travel Research began collecting data in 1987.

Home prices have dropped 30 percent, on average, from the peak in 2006. In some markets, they're down more than 50 percent. Homes in parts of Detroit are cheaper than a new car.

Overall, prices are tumbling at the fastest rate in decades. The government's Consumer Price Index, which measures the average price of goods and services purchased by households, has fallen 1.5 percent over the last 12 months. The reading for July showed a 2.1 percent annual decline, the biggest since 1950.

The largest decline has been in energy prices, but other areas have fallen, too. Among them: food, appliances, furniture, jewelry, sporting goods, audio and visual equipment and apartment rents.

The one thing we are neglecting in this debate is the impact of foreign exchange and artificially low interest rates upon that investment. If foreign investors dump the dollar (as the Arab states were threatening here: http://www.independent.co.uk/news/busin ... 98175.html) what would this mean? The pooh-poohing of foreign investors not dumping the dollar is OVER! If the dollar is dumped, there will be no value in it, it will be destroyed, meaning that it becomes as a penny, worthless. While the short-term trend is still deflation, I cannot see anywhere but inflation in the long run, the FED be darned. They will dig themselves a pit and fall into it as predicted by the Book of Mormon. This may be the pit.

pjbrownie wrote:The one thing we are neglecting in this debate is the impact of foreign exchange and artificially low interest rates upon that investment. If foreign investors dump the dollar (as the Arab states were threatening here: http://www.independent.co.uk/news/busin ... 98175.html) what would this mean? The pooh-poohing of foreign investors not dumping the dollar is OVER! If the dollar is dumped, there will be no value in it, it will be destroyed, meaning that it becomes as a penny, worthless. While the short-term trend is still deflation, I cannot see anywhere but inflation in the long run, the FED be darned. They will dig themselves a pit and fall into it as predicted by the Book of Mormon. This may be the pit.

IMO Debt is the pit. Deflation is an inherent result of debt. Deflation is the killer as it causes massive defaults across the system. You can devalue but that only accelerates the process as now you have inflation in the prices of inputs (read foreigners) while demand is collapsing on the consumption side. Everybody in the middle dies!

The part you are neglecting is everyone knows this so it comes down to a decision point - complete write-off of the US with all the military implications that encompasses or keep taking the dollar. Problem is there just aren't enough dollars to go around and the whole shebang is steam rolling towards a big bang conclusion.

pjbrownie wrote:The one thing we are neglecting in this debate is the impact of foreign exchange and artificially low interest rates upon that investment. If foreign investors dump the dollar (as the Arab states were threatening here: http://www.independent.co.uk/news/busin ... 98175.html) what would this mean? The pooh-poohing of foreign investors not dumping the dollar is OVER! If the dollar is dumped, there will be no value in it, it will be destroyed, meaning that it becomes as a penny, worthless. While the short-term trend is still deflation, I cannot see anywhere but inflation in the long run, the FED be darned. They will dig themselves a pit and fall into it as predicted by the Book of Mormon. This may be the pit.

We really neglected this? Did you read everything above? Here's just one example:

JMarsigli wrote:This is what I was talking about earlier in losing our stability premium. Foreigners dump t-bills and rates will jump as the USD falls on the Forex. However, they cannot and likely will not. If China dumps dollars then their currency appreciates. Their currency appreciates and we cannot afford their goods. If we don't buy their goods then their economy starts to collapse. If their economy starts to collapse then the people start to rebel. If the people rebel then the communists risk losing power. The communists like power so they support a strong dollar and devalue their own currency.

You may end up being correct, but your argument here is circular. We've discussed this beyond your "first stage" analysis, but you failed to respond. Instead, you went back to the beginning. Do you care to address or counter the reasons stated earlier, and in Jason's post directly prior to this one, why the world will not dump dollars? I'd love to hear.

If anything, I think there will be some appreciation of Asian currencies, Brazilian will continue its long rise, and developed nations with significant mineral extraction (Australia and Canada) will appreciate. But I don't think anyone is going to dump t-bills.

I vote that inflation is what we are going to see. I go to the grocery store often. (Some weeks waaaay to often.) I don't see prices getting lower. In fact I am seeing the prices getting higher. For example Ragu sauce just went up 5 cents. So I read all these articles that talk about how prices are coming down. But the reality I am seeing at the grocery stores and and walmart is that prices are climbing. So you all can quote whatever financial articles you want. I will go with what I am seeing in real life. Oh and a lot more people now have lists at the grocery stores and only buying what is on their lists. And the people are grumpier while shopping too.

Nan wrote:I vote that inflation is what we are going to see. I go to the grocery store often. (Some weeks waaaay to often.) I don't see prices getting lower. In fact I am seeing the prices getting higher. For example Ragu sauce just went up 5 cents. So I read all these articles that talk about how prices are coming down. But the reality I am seeing at the grocery stores and and walmart is that prices are climbing. So you all can quote whatever financial articles you want. I will go with what I am seeing in real life. Oh and a lot more people now have lists at the grocery stores and only buying what is on their lists. And the people are grumpier while shopping too.

First off I'd like to know where you shop...

Second you are talking about 5 cents here and 5 cents there.....What are your biggest expenses every month?

I just bought a new kitchen table and chairs for 50% less than it cost a year ago. That is 16,000 of your 5 cent bumps. I've recently been pricing commercial treadmills and the price has dropped over $2k in the past couple of months for the one I'm looking at. That is 40,000 of your 5 cent bumps. My in-laws have just seen their house lose $100k in value over the past year. That is 2 million of your 5 cent bumps.

The items you are using for reference are low margin products that involve a number of touches (transportation, manual labor, etc) to get them from source to consumer. Any one of those touches can shift prices a percent or two any given week and that isn't taking into account lot sizes or economies of scale issues which also impact those goods when demand falls. One large input which is fuel cost hasn't fallen as much since the Saudis have dropped oil production by 25% or 4 million barrels of oil per day. All that said, I'm wary of those reference points.

...cont...

Let's say you purchase 300 grocery items a week and each one of them goes up by 5 cents...you are only talking $15 for the week or $60 for the month. Sure it adds up but its one tank of gas or a couple finance charges at the bank or an interest payment on a credit card. In comparison to taking a $50k and up hit on your house or saving $5k on a new car purchase or other large purchases....its pretty small potatoes!

Nan wrote:I vote that inflation is what we are going to see. I go to the grocery store often. (Some weeks waaaay to often.) I don't see prices getting lower. In fact I am seeing the prices getting higher. For example Ragu sauce just went up 5 cents. So I read all these articles that talk about how prices are coming down. But the reality I am seeing at the grocery stores and and walmart is that prices are climbing. So you all can quote whatever financial articles you want. I will go with what I am seeing in real life.

I covered the lag effect of commodity prices earlier. Did you read that? Besides, Jason is right on oil. A package of corn flakes has like $.05 of corn in it. Transportation costs more.

It's funny you're actually arguing a deflationary force here:

Nan wrote:Oh and a lot more people now have lists at the grocery stores and only buying what is on their lists. And the people are grumpier while shopping too.

Buying less = deflationary force. Hey Jason, I think we have our first recruit!

...but then again, it's starting to look like the currency traders are trying to force a dollar:asia currency rebalance. And, China is creating new social programs, a key to building a consumer economy there. That'd start it up. It's still all eyes on China.

JMarsigli wrote:

Nan wrote:I vote that inflation is what we are going to see. I go to the grocery store often. (Some weeks waaaay to often.) I don't see prices getting lower. In fact I am seeing the prices getting higher. For example Ragu sauce just went up 5 cents. So I read all these articles that talk about how prices are coming down. But the reality I am seeing at the grocery stores and and walmart is that prices are climbing. So you all can quote whatever financial articles you want. I will go with what I am seeing in real life.

I covered the lag effect of commodity prices earlier. Did you read that? Besides, Jason is right on oil. A package of corn flakes has like $.05 of corn in it. Transportation costs more.

It's funny you're actually arguing a deflationary force here:

Nan wrote:Oh and a lot more people now have lists at the grocery stores and only buying what is on their lists. And the people are grumpier while shopping too.

Buying less = deflationary force. Hey Jason, I think we have our first recruit!

LOL I would love to know the weighting of the purchase decisions i.e. economies of scale. Walmart buys 1 billion instead of 10 billion of an item hence the fixed costs are spread over lower volume thus raising the cost and possibly the price of an item. I know its killing the American car manufacturers right now. Be very interesting to see the statistics of groceries and how much of an impact it plays....

"We are very early on in this credit cycle," Timothy Long, chief national bank examiner at the Office of the Comptroller of the Currency, said at a recent conference.

"Third-quarter earnings for most banks, particularly the regional lenders, will be extraordinarily negative," Bove said.

He estimates that about 60% of banks will report losses in the period as nonperforming assets continue to grow and charge-offs remain very high. Lenders will also have to increase reserves because they didn't bolster them enough during the second quarter, Bove added.

Loan growth will likely remain sluggish and net interest margins won't increase much, partly because funding costs have already dropped so much that they can't fall much further, the analyst explained.

"None of this bodes well for the third quarter," Bove said. "Once the market is faced with the reality of how bad the earnings are, it will be interesting to see whether investors will be able to hold on to these stocks at these price levels."

At the end of September, K.C. Conway, a real-estate expert at the Federal Reserve Bank of Atlanta, warned of big commercial real-estate losses and said banks will be slow to recognize the severity of those losses, according to a presentation to bank regulators reviewed by The Wall Street Journal.

More than half of the $3.4 trillion in outstanding commercial real-estate debt is held by banks and vacancy rates in the apartment, retail and warehouse sectors have already exceeded levels seen in the real-estate collapse of the early 1990's, the newspaper noted.

"That's the big bogey-bear staring us in the face," Bush said. "But when I ask banks about their commercial real-estate exposure, they all say the same thing -- that they don't have many major problems. Then you read the Fed report and it's completely different. I don't know which to believe."

- http://www.marketwatch.com/story/as-ban ... 2009-10-09

Jason wrote:

"We are very early on in this credit cycle," Timothy Long, chief national bank examiner at the Office of the Comptroller of the Currency, said at a recent conference.

"Third-quarter earnings for most banks, particularly the regional lenders, will be extraordinarily negative," Bove said.

He estimates that about 60% of banks will report losses in the period as nonperforming assets continue to grow and charge-offs remain very high. Lenders will also have to increase reserves because they didn't bolster them enough during the second quarter, Bove added.

Loan growth will likely remain sluggish and net interest margins won't increase much, partly because funding costs have already dropped so much that they can't fall much further, the analyst explained.

"None of this bodes well for the third quarter," Bove said. "Once the market is faced with the reality of how bad the earnings are, it will be interesting to see whether investors will be able to hold on to these stocks at these price levels."

At the end of September, K.C. Conway, a real-estate expert at the Federal Reserve Bank of Atlanta, warned of big commercial real-estate losses and said banks will be slow to recognize the severity of those losses, according to a presentation to bank regulators reviewed by The Wall Street Journal.

More than half of the $3.4 trillion in outstanding commercial real-estate debt is held by banks and vacancy rates in the apartment, retail and warehouse sectors have already exceeded levels seen in the real-estate collapse of the early 1990's, the newspaper noted.

"That's the big bogey-bear staring us in the face," Bush said. "But when I ask banks about their commercial real-estate exposure, they all say the same thing -- that they don't have many major problems. Then you read the Fed report and it's completely different. I don't know which to believe."

- http://www.marketwatch.com/story/as-ban ... 2009-10-09

The latest IMF report (shhh, we're not supposed to give these any credit on this forum) said banks are still way under capitalized worldwide, will need to raise more money, and earnings will not outpace losses.

"Net interest margins won't increase much" because they are at historical highs! Wells Fargo was clearing 4% last quarter, if I remember right. That's pretty wide.

Annaly has an interesting take on commercial real estate:

StuyTown/ Peter Cooper Village & Riverton Apartment Updates: In our February 2009 Commentary, we introduced readers to the dubious underwriting standards for loans to these two closely-watched projects. Below are updates to their financial situations.

The September remittance report for StuyTown indicates that only $33.6 million remains of the initial funded interest reserve of $400 million. Approximately $16.0 million was funded during September for debt service shortfalls. Given the math, StuyTown will default before year end without either a significant modification or an infusion of equity.

...In September, the Riverton was appraised at $108 million versus an original value of about $340 million and first mortgage of $225 million.

Not in default yet, but it's still coming. Their discussion of the CMBS bond market is worth reading too.

http://phx.corporate-ir.net/phoenix.zht ... id=1340638